QANTAS IN RACE TO OFFSET CARBON FOOTPRINT AND SAVE ON FUEL COSTS IN LEAP THAT MIRRORS MOVES BY BA LAST YEAR

By Dino D'Amore
January 4, 2011 14:44

Qantas has confirmed it is planning to build a biofuel plant in Sydney that will burn rubbish in an effort to power the airline’s fleet with greener fuel. Qantas has joined with US fuel supplier Solena to investigate the construction of a commercial waste biofuel plant in Sydney, a move that could create 1200 jobs. This would be only the second such plant of its kind in the world. A similar plant being built with British Airways in London, due to begin processing in 2014, will convert up to 500,000 tonnes of waste a year into 73 million litres of green jet fuel, enough to power 2% of BA’s Heathrow fleet.

The Qantas/Solena joint venture would aim to convert commercial waste to biofuel using the Fischer-Tropsch (F-T) method, a 1920s German process used to produce synthetic jet fuel from coal in South Africa and gas in Qatar. Unlike synthetic fuels, however, biofuels produced by the F-T process from waste have a lower carbon footprint over their production lifecycle than traditional jet fuel. The plant will use scraps and other household material such as grass and tree cuttings and agricultural and industrial waste as a feedstock for the fuel. Lufthansa is also looking into a JV with Solena.

Make no mistake that the true value of this and the BA venture will be in the carbon off set accredited against any future global or regional agreements such as the EU-wide ETS programme. These plants allow airlines to literally turn their own waste into fuel.

Qantas has stated that it is still looking into using crops to make biofuel in what the airline hopes could become a sustainable industry and forever dislocate it from the need for the black stuff.

Solena does have a problem though – there is competition for waste to burn to create fuel in the form of the mighty power generators. Securing a supply of biomass waste for new plants means that ideally facilities will be located in or near cities, where most of the waste will be sourced, and near airlines’ bases.

Solena will therefore face competition from other companies planning to build incinerators, which also need to use waste to generate subsidised electricity in exactly the same locations. So we can all be sure that large brownfield sites in cities could be worth investing in at this time while commercial property is on the floor and it seems that the waste collection business will be the new oil business in decades to come which is great news for councils/local authorities as they look to sell waste to the highest bidder. It could also mean that there is room for competition and investment in a deregulated waste collection industry of the future so do not be surprised in 2050 if Virgin is offering to collect your household waste!

Meanwhile, kerosene type jet fuel spot prices breached the $2.5 a gallon mark at the turn of the year with oil reaching a $91-$93 range per barrel. Oil year-end predictions at this stage are wild at best with many looking to economic markers that are just non existent or remain untrustworthy. Prices are being driven by weather conditions just as much as South East Asian demand. As mentioned in October 2009 and again in September 2010 it does appear that 2010 year was the eye of the economic storm for many regional economies so we could well see airlines in some areas such as Europe entering a steep decline while oil continues to be driven up by demand in South East Asia and the Americas. It is an uncertain playing field such as this that fuel hedging was invented for. Many airlines will need to revisit the fuel hedge and draw a line in the sand, remembering all the while that banks will be losing money again in 2011 with bond market re-evaluations on the cards and with the implications from Basel III starting to bite, forcing banks to increase liquidity which in turn could send oil lower by the end of 2011. The 2011 rollercoaster is off and running, the best of luck to you all!